Abstract

In this communication, we develop suitable valuation techniques for a with-profit/unitized with profit life insurance policy providing interest rate guarantees, when a jump-diffusion process for the evolution of the underlying reference portfolio is used. Particular attention is given to the mispricing generated by the misspecification of a jump-diffusion process for the underlying asset as a pure diffusion process, and to which extent this mispricing affects the profitability and the solvency of the life insurance company issuing these contracts.

Publication Type:

Article

Additional Information:

NOTICE: this is the author’s version of a work that was accepted for publication in Insurance: Mathematics and Economics. Changes resulting from the publishing process, such as editing, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in INSURANCE: MATHEMATICS AND ECONIMICS, VOL 37, ISSUE 2, October 2005, DOI 10.1016/j.insmatheco.2004.10.001